Which is the best outdoor advertising stock to buy today? (Part II)

This is the second article of two articles aiming to identify which of APN Outdoor Group Ltd(ASX: APO), oOh!Media Ltd (ASX: OML) and QMS Media Ltd(ASX: QMS) is Australia’s best outdoor advertising stock.

Market positions & strategies continued…

New Zealand is behind Australia in terms of changing over to digital media and this is part of the reason that QMS recently bought iSite, one of the top two outdoor advertising firms in New Zealand. The deal also makes sense because QMS recently won a large contract to manage outdoor advertising assets for Auckland Transport and iSite is already active in the Auckland transit market.

oOh!Media is focused on advertising that is close to the point of sale and in places where people remain for a substantial amount of time. Retail precincts, airports, cafés, bars and gyms all fit the bill and also offer the possibility to use Wi-Fi enabled signs. The company is investing heavily in both online and offline advertising delivery and acquired online content and publishing company, Junkee Media, for $13 million in June 2016.

The management of oOh!Media believes that national coverage is important for attracting international advertisers which might explain why the company owns assets in both metropolitan and regional locations. Meanwhile, APN’s business is concentrated in the cities and the company has made four acquisitions in the last 12 months. It is buying up attractively positioned sites and then upgrading them to digital billboards to realise their full value.

Financials & valuations

APN and oOh!Media both have financial years that end on 31 December, but QMS’s financial year ends on 30 June. As QMS was only formed on listing in 2015, there are no comparison figures for its results for the first half of 2016.

APN delivered revenue of $300.8 million in 2015, up 20% on the prior year whereas oOh!Media recorded growth of just 7.3% to $279.8 million. The APN result was assisted by a number of acquisitions made in the second half of 2015, but these would have only contributed a few million dollars in revenue at most.

APN’s earnings before interest, tax, depreciation and amortisation margin (EBITDA%) was 24.4% in 2015, up from 18.1% in the prior year. This is better than oOh!Media which managed 20.6% in 2015, up from 16.1% in 2014 and slightly ahead of QMS which delivered an underlying EBITDA% of 24.1% for the first half of 2016. The QMS result is likely to fall in the second half of the year given sales are generally stronger in the lead up to Christmas.

At 31 December 2015 APN had net debt of $56.9 million, oOh!Media had $86.2 million of net debt and QMS had $13.3 million in cash and no debt. These debt levels are comfortable given APN generated $73.3 million and oOh!Media delivered $57.7 million of EBITDA in 2015.

APN has an enterprise value-to-EBITDA multiple (EV/EBITDA) of 15.9 based on 2016 guidance compared to 12.9 for oOh!Media. I estimated that QMS is trading on an EV/EBITDA of 14.2 based on its result for the first half of 2016 and an annualised contribution from iSite.

Verdict

Personally, I think that all three of these businesses look a little pricey given their high exposure to the business cycle. However, the long-term prospects of the outdoor advertising industry are positive and so all three companies have the potential to perform well over time.

QMS is the smallest and has the most fragmented service offering and so is a higher risk proposition than APN or oOh!Media which both dominate their respective segments. oOh!Media is the leader in retail which is the fastest growing out of home advertising format and I like management’s strategy of strengthening the company’s online capabilities.

The more that oOh!Media develops its interactive advertising products, the harder it will be for competitors to enter the market. It is also the cheapest and so is my pick of the three businesses.

Few know, that as Warren Buffett blew out the candles on his 50th birthday cake, he had just 1% of his current fortune. Think about it: At an age when most give up hope, Buffett was just getting started on the remaining 99% of his fortune. Goes to show you that it's never too late for you to potentially get rich. Which is why we've gathered the strategies we learned from Buffett, distilled them down to 11 simple lessons, and put it in an exclusive report for you to claim. Just click here to learn more about this handy investing guide.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This is the second article of two articles aiming to identify which of APN Outdoor Group Ltd (ASX: APO), oOh!Media Ltd (ASX: OML) and QMS Media Ltd (ASX: QMS) is Australia’s best outdoor advertising stock.

Market positions & strategies continued?

New Zealand is behind Australia in terms of changing over to digital media and this is part of the reason that QMS recently bought iSite, one of the top two outdoor advertising firms in New Zealand. The deal also makes sense because QMS recently won a large contract to manage outdoor advertising assets for Auckland Transport and iSite is already active…

CLAIM YOUR FREE SUBSCRIPTION NOW

What's REALLY going on in the share market...and what do we think is the BEST and SAFEST way to make some money right now? Discover our experts' take on the ASX with your FREE subscription to The Motley Fool Australia's weekly email Take Stock...

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.

Fools on Facebook

To keep reading, enter your email address or login below.

Enter your email below for FREE access to this article and all the content on the site. Also receive Take Stock, The Motley Fool's unique daily email on what's really happening with the share market. You may unsubscribe any time.

Satisfaction Guaranteed!

The Motley Fool stands behind our products and our membership-fee-back guarantee. If for any reason you are not 100% satisfied with your premium subscription, simply notify us within the first 30 days and you won’t pay a cent.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don’t worry, though – you’re not locked in, and can cancel your auto-renewal at any time before each ‘anniversary’ date without question or penalty.

We love you, but we need to talk. It's your browser. Internet Explorer 8 (or older) has known security flaws, and may not display all of our Foolish website's features – or those of other websites, for that matter. We encourage you to use the following link to update your browser so that you can more safely browse the Web (http://browsehappy.com/).